Making Sense of Chinas Economic Reform: Initial Success and Current Danger Zhiyuan Cui School of Public Policy and Management Tsinghua University Beijing,

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Presentation on theme: "Making Sense of Chinas Economic Reform: Initial Success and Current Danger Zhiyuan Cui School of Public Policy and Management Tsinghua University Beijing,"— Presentation transcript:

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Making Sense of Chinas Economic Reform: Initial Success and Current Danger Zhiyuan Cui School of Public Policy and Management Tsinghua University Beijing, China

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China: A New Workshop of the World Shunde in the Pearl River Delta, microwave-oven capital of the world, with 40% of global production in a single giant factory Shenzhen makes 70% of the worlds photocopiers Dongguan has 80,000 people working in a single factory making running shoes Zhongshan is the home of the worlds electric lighting industry

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Sen on Chinas Pre-reform and Post-reform Connection It may have been very far from Maos own intentions to develop literacy and basic health care in ways that would help to promote market-based, internationally- oriented enterprises (though that dialectical contrariness must have some interest for a Marxist theorist). But these structural achievements in the pre-reform period have certainly served as direct and valuable inputs in fostering economic performance in post-reform China. In drawing lessons from China, these apparently contrary interconnections can be particularly important.

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Intermediate goods Final goods Exports Domestic intermediate goods Capital and labor Domestic sales Country 1 Country 2 Country 3 A BCC D E Vertical Specialization Country 1 produces an intermediate good and exports it to Country 2. Country 2 combine the imported intermediates with capital and labor (value added), and domestically produced intermediate inputs to produce a final good (gross output). Finally, Country 2 exports some of the final good to Country 3.

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Two Example Areas of Foreign-Invested Processing Exports Guangdong:In 2003, solely foreign-invested processing exports accounts for 72.3% of its total processing exports, being 85.4 billion US$; barter terms of trade deteriorated from 1 in 1998 to 0.65 in 2003; value- added in processing exports has been kept at 18% Suzhou:In 2004, foreign-invested processing exports accounts for 97% of its total processing exports, being 40.3 billion US$; in high-tech industry and machinery and electronic industry it accounts for 98% and 96%, respectively; value-added in processing exports has dropped from 63.5 in 1998 to 14% in 2004

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The Problematic Future of Suzhous Industrial Development under Foreign-Invested Processing Exports Crowding-out domestic firms Low local content No new land available for future development